5 cash flow crisis management tips to avoid economic icebergs

Avoid becoming the next Titanic-sized failure and gain control of your business finances with these cash flow crisis management tips.

cash flow crisis management

When the Titanic sank in April 1912, there were a variety of factors that caused one of the worst maritime disasters in history. Experts agree that it was a combination of human error and natural forces that led to the historical sinking. The ship was going too fast, the crew dismissed a critical iceberg warning (and then made a fatal wrong turn), key costs were cut that sacrificed safety and there was a lack of equipment including binoculars and lifeboats.

If you’re running a company during the recent pandemic, there are some important lessons to be learned from the history of the Titanic. The financial impact of economic downturns can be significant when sales start slowing down, contracts are delayed, supply chains are disrupted, customers can be lost and, ultimately, cash flow is affected.

To survive, many businesses will need to leverage cash flow crisis management strategies. Though you may not always be able to avoid the ‘icebergs’ ahead, you can plan and respond to changing market conditions proactively to minimize the impact on your business — and avoid disaster. 

Here are four cash flow crisis management tips that can help you minimize the impact of economic downturns on your business:

1. Update your cash flow forecasts

“Cash is king.” Considering that the cash cycle for many businesses is 90 days, it is essential to have a good understanding of your sales cycle in terms of lead times, purchase of raw materials and production of goods and services. Sales forecasting helps business owners understand where cash is going (and coming) from. It can also help you to establish a strong slush fund in case of slow periods of growth.

Thinking about the future of your business is critical to success. However, as the business grows, it can become harder to get additional financing due to the debt that the business has to take on. Evaluating your burn rate and runway, your marketing programs and expenses can help you make necessary adjustments to your cash flow forecasts.

2. Follow up on outstanding accounts receivable

In periods of economic downturn, it is important to get on top of your accounts receivable and make sure that you are getting paid on time. By carefully auditing your accounts receivable, you can achieve better financial flexibility to avoid economic icebergs in the waters.

Once you have a firm understanding of what accounts are outstanding, it’s time to follow up with those accounts and have them settle their invoices. It may also be worth considering and balancing the risks and rewards of adjusting your terms of payment.

Want to learn more about savvy bookkeeping tips for small businesses? Click here.

3. Review and adjust expenses

To achieve greater business resilience, it’s important to understand all of the liabilities for your business and to have a plan to reduce them. Evaluating what your fixed and variable costs are is a good way to start cutting costs.

Looking for areas of flexibility on your payroll, cutting redundant line items and considering time management strategies or tools are just a few ways that you can adjust your expenses and increase profitability.  

 

cash flow crisis management

4. Consider alternative financing options

Keep an eye on future planning and strategizing. As your business grows quickly or financial circumstances change, you can run into challenges getting additional financing through traditional funding options. 

Leveraging the power of alternative financing options such as Invoice Factoring, Asset-based Lending or PO Financing could be the life preserver your business needs. Alternative funding can also help to increase flexibility and long-term success while complementing your current traditional funding arrangements.


At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital, you’re talking directly to your funding source and a fellow business person.

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